2023 (2) TMI 658 - AT - Central Excise

Evasion of Central Excise Duty - rejection of the invoice value as the transaction value - liquidated damages - allegation of affording a method by which pre-planned amount could be transferred back to the seller and, thus, constituting additional consideration under a different guise - HELD THAT - The finding of the original authority is, without saying in so many words, based on transaction value in section 4(1) of Central Excise Act, 1944 not being truly reflected in the invoices and, therefore, to be enhanced to the extent of liquidated damages representing additional consideration. It is clear from section 4 of Central Excise Act, 1944 that several elements enumerated therein combine to designate such price as transaction value on which appropriate rate of duty would, in accordance with section 3 of Central Excise Act, 1944, apply. These are the price to be the sole consideration for sale of goods sold by the manufacturer for delivery at the time and place of removal and to the extent that the assessee and the buyer are not related each other. There is no finding in the impugned order, or unearthing by investigation, that the details of the contract so designated as liquidated damages , contingent upon inability of the dealers of the buyers to book the prescribed number of vehicles, for remitting additional consideration. It is clear from section 4 of Central Excise Act, 1944 that any deviation from any of the elements enumerated therein would require treatment prescribed in Central Excise (Determination of Price of Excisable Goods) Rules, 2000. These several rules commence with the declaration that there is no option for determination of value other than by recourse to in Central Excise (Determination of Price of Excisable Goods) Rules, 2000 - in the event of rejection of the invoice value as the transaction value, it was not open to the adjudicating authority to re-determine value without recourse to Central Excise (Determination of Price of Excisable Goods) Rules, 2000. As the order is deficient in such finding, and more particularly as the show cause notice leading to the impugned order is also equally silent, the adjudicated demand and the fine and penalties flowing therefrom would not survive. Appeal allowed.

Summary

Issues:
1. Controversy over attributing liquidated damages in a supplementary agreement.
2. Enhancement of assessable value directed by the Commissioner of Central Excise.
3. Interpretation of liquidated damages as consideration for manufactured vehicles.
4. Application of Central Excise Act, 1944 in determining duty liability.
5. Allegation of evasion of central excise duties through the agreement.
6. Compliance with Central Excise (Determination of Price of Excisable Goods) Rules, 2000.

Issue 1: Controversy over attributing liquidated damages in a supplementary agreement.
The dispute revolves around the enhancement of the assessable value directed by the Commissioner of Central Excise, Customs & Service Tax, Aurangabad, concerning liquidated damages arising from non-fulfillment of the contracted purchase in a supplementary agreement between the appellant and two buyers. The central excise authorities sought to impose duty and penalties on the appellant based on the interpretation of liquidated damages as consideration for manufactured vehicles.

Issue 2: Interpretation of liquidated damages as consideration for manufactured vehicles.
The appellant argued that compensation/damages from breach of contract are a legal right under the Indian Contract Act, 1872 and not consideration for the cars manufactured and sold. They contended that the agreement was for supply, not for non-performance, and relied on legal precedents to support their position. The central excise authorities, however, viewed liquidated damages as additional consideration, leading to the dispute.

Issue 3: Application of Central Excise Act, 1944 in determining duty liability.
The central issue was whether the demand raised under section 4(1)(a) of the Central Excise Act, 1944, for liquidated damages, was valid. The appellant argued that the transaction value defined in the Act does not extend to liquidated damages. They cited tribunal decisions and accounting guidelines to support their stance that the impugned order was contrary to law.

Issue 4: Allegation of evasion of central excise duties through the agreement.
The Authorized Representative alleged that the agreement was a method to evade central excise duties by transferring pre-planned amounts back to the seller under a different guise, constituting additional consideration. This raised concerns about the true nature of the agreement and its implications on duty liabilities.

Issue 5: Compliance with Central Excise (Determination of Price of Excisable Goods) Rules, 2000.
The judgment highlighted the importance of adhering to the Central Excise (Determination of Price of Excisable Goods) Rules, 2000, in determining the value of excisable goods. The tribunal emphasized that in the absence of proper findings and compliance with the rules, any re-determination of value without recourse to the rules would not be appropriate.

In conclusion, the tribunal set aside the impugned order and allowed the appeal due to deficiencies in findings and non-compliance with the Central Excise Act and related rules. The judgment emphasized the need for proper interpretation of legal provisions and adherence to established guidelines in determining duty liabilities and assessable values.